M&A: The Perfect Storm of Change

Mark Herndon headshot
By Mark Herndon
President, M&A Partners
Feb 22, 2017

(Third in a Series on Change Management)

No major change is easy to navigate, but M&A-related change is in a different league entirely. Welcome to the big leagues of change management. Or perhaps more accurately, the perfect storm of change. As we discussed in our two previous articles, every leader must learn to effectively lead through change. If you do, results will follow. If not, value gets destroyed. That’s generally true of any major change you are likely to encounter in business. But M&A integration is different -- and harder -- for many reasons. Without an adequate understanding of and appreciation for the M&A-specific change dynamics you will encounter, your well-intentioned best efforts may still come up short.

"If I’m an employee sitting in a town hall meeting hearing you talk about me being acquired again, and how great it’s going to be, all I can remember is how I’ve been burned before by the last CEO who said the same exact thing."

Please refer to M&A – The Perfect Storm of Change, for a quick review of some of the unique and challenging M&A-related change dynamics you need to be fully informed about. We won’t be able to cover them all now, but please contact me if you’d like to brainstorm further or if you can help me add to this list! For now, here’s a good start.

  • Competitive conflict. When you buy a target company that you have intensely competed with in the past (products, margin, market share, same customers, same talent pool, etc.), look out! The psychological distance, disdain and distrust tends to run deep. If leaders have motivated their troops to get out of bed in the morning to stomp you in the dust, those ingrained habits, passions and practices can have a very long shelf-life.
  • Strength of brand identity. This is similar to, but entirely different than competitive conflict. Most deals ultimately require at least some co-branding, rebranding or an entire brand migration strategy to unleash the intended deal value. The stronger the brand identity in your target company, the stronger and more dangerous is the legacy brand affiliation in the minds of your newly acquired team members. They probably like their brand and don’t want to see it go away or be damaged by your marketing people. (For an interesting related story, see Caution Ahead – Cultural Flashpoints)
  • Entity size/structure. Great care and attention is typically required to effectively integrate key leaders and key talent from smaller, earlier stage and more entrepreneurial organizations, when being acquired by bigger, later stage and more bureaucratic companies. Some folks probably went to work in that type of environment specifically to avoid the “big company tendencies” and may never be comfortable working in a bigger, more complex entity. You’ve no doubt seen this type of change risk erupt in many different ways, including conflicts over  the degree of governance oversight; the lack of a manager’s new purchase or decision authorities; the confusion and frustration caused by a new matrix management structure; lack of access to new decision makers and information flows; and a hundred other possible risks.
  • Business model and values disconnect. Watch your field sales team on this one. Here’s a perfect case in point from a project I was tasked with cleaning up a few years ago. The buyer was a major player in the diversified financial services sector. It developed its own branded, proprietary investment products that its internal sales force sold on an exclusive basis. The margins were great, but the relative performance of some products had declined over the years when compared to similar products available elsewhere. The target company was comprised of wealth management consultants who for years had prided themselves on delivering the best recommendations to their clients, regardless of which brand family it was from. You can imagine the shrieks of indignation and fall-out when the buyer company management stipulated that only “our branded products” would be sold to their legacy customers.
  • Buyer’s lack of integration skill and credibility. Target company staff members understand that being acquired means change. There’s an expectation of change, even if there’s not a readiness to accept change. For those acquirers that come across as clumsy, uncoordinated, not good at making decisions in a timely fashion, not good at integration, not good at communicating, and generally, out of touch with the issues that are impacting the target staff, the built-in goodwill and expectation of change will quickly turn to hostility, contempt and resistance. That’s one reason we focus so much effort on building your internal M&A capabilities before the starting gun goes off.
  • Weasel words, half-truths and outright BS. Your newly acquired or to-be acquired team members already have a finely tuned “BS meter.” Without adequate strategic messaging, communications campaign planning, training, preparation, practice and, most importantly, leadership courage, your key executives may be prone to wimping out by saying things they just can’t back up, but sounded better at the time. We have a firm conviction that people can handle unpleasant certainties far better than they can handle pleasant uncertainties.

This discussion leads to a particularly challenging realization. M&A integration-related change management is really hard to get right. Here’s a little considered fact. Most employees have been acquired once, twice or perhaps even several times prior to your deal. As the M&A statistics, war stories and failure factors continue to highlight, most deals still incur a high level of collateral damage and value erosion. If I’m an employee sitting in a town hall meeting hearing you talk about me being acquired again, and how great it’s going to be, all I can remember is how I’ve been burned before by the last CEO who said the same exact thing. A prior trust deficit is exponentially harder to overcome and requires the very best change leadership expertise from stem to stern.

Master change management and other people issues in the context of M&A. Join us for The Art of M&A for HR Leaders in Orlando this May. Register now to qualify for the Early Bird discount! 

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